AgdaPkt 2017-09-25 Closed and Joint SA PFA

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lifespans, and underestimating the cost of benefit enhancements negotiated in the past. Past investment losses were amortized over a 30-year period, which had the positive benefit of limiting annual contribution increases, but which did not adequately pay down unfunded liabilities. As a result, the City now needs to substantially increase annual payments to CalPERS to fully fund benefits. In order to assess the City’s long-term pension obligations, the City engaged John Bartel, President, Bartel Associates, LLC, to model the actuarial valuations of the City’s pension plans over the next thirty years. Mr. Bartel’s projections illustrate that the City’s annual contributions will increase significantly. The City’s annual PERS payment in FY 2021-22 is projected to be approximately $33.0 million, $13.4 million more than it is today, a 68 percent increase. Costs are expected to continue to grow through FY 2030-31, when annual costs will be more than double what they are today. These projections are at a 50 percent confidence level, meaning there is a 50 percent likelihood that the cost could be lower, and a 50 percent likelihood that the cost could be higher. On May 22, 2017, the City Council received a report on the City’s unfunded pension liabilities and authorized pre-funding the City’s pension obligations through the establishment of an irrevocable pension supplemental Section 115 Trust. Section 115 Trust funds must be dedicated only towards pre-funding pension obligations, and offer the following benefits: · Act as a reserve fund to help the City pay for increasing CalPERS annual contribution requirements · Provide local control and more flexibility in investment allocations compared to maintaining funds in a City-invested reserve or giving money to CalPERS to pay down unfunded liability · Offer higher investment returns than could be attained by maintaining monies within the City’s investment portfolio (which is restricted by State regulations to fixed income instruments and has yielded a return of approximately 1.0 percent in the last year) The City Council also directed staff to prepare an agreement with Public Agency Retirement Services (PARS) to administer the Section 115 Trust; fund the initial Section 115 Trust deposit with FY 2016-17 General Fund year-end remaining fund balance that is beyond a 15 percent reserve threshold, (which is $8.8 million); and return to City Council to approve the documents required to establish the Section 115 Trust account. ANALYSIS PARS is an independent retirement plan administrator and consultant headquartered in California and authorized to offer Section 115 Trusts. PARS has received a Private Letter Ruling from the Internal Revenue Service, which assures participants of the tax- exempt status of their investments. 6.3.A. - Page 2